State finances are not transparent and often include hidden liabilities as well as rapidly growing responsibilities which are difficult to control. While state revenues are gradually recovering from the drastic decline of the Great Recession, they are not growing sufficiently to keep pace with the spending required by Medicaid costs, pensions, and other responsibilities and obligations. This has resulted in persistent and growing structural deficits in many states which threaten their fiscal sustainability.
Major fiscal threats include:
• Medicaid Spending Growth
• Underfunded Retirement Promises
• Eroding, Narrow, and Volatile Tax Bases
• Impact of Federal Deficit Reduction
• Local Government Fiscal Stress
In addition, budget gimmicks and inadequate reporting mask and encourage fiscal problems, and make them more difficult to solve. While none of our states is on the brink of financial collapse, these threats loom large.